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Thinktank- Time To Change Single Head Governance Of Canada’s OSFI

May 21, 2026 The Silo Leave a comment

Since its creation in 1987, the Office of the Superintendent of Financial Institutions (OSFI) has served as Canada’s federal micro-prudential regulator, operating under a single-head governance model that was suitable at the time but has not undergone a major review in nearly three decades.
Particularly following the 2008 financial crisis, OSFI’s activities have expanded in response to a more complex and rapidly evolving environment in which Canadian financial institutions operate. Meanwhile, governance practices across the financial sector have modernized, leaving OSFI’s structure increasingly out of step with its domestic and international peers.
To modernize OSFI’s governance, policymakers should mandate regular parliamentary oversight and introduce a multi-member model, such as a board of directors supported by advisory committees. These changes would strengthen transparency, accountability, and diversity of perspectives, ensuring that OSFI remains a credible and responsive regulator.
OSFI would also benefit from a periodic review of its governance framework. A formal review cycle, at least once every decade, would help keep its governance model current, effective, and aligned with its expanding responsibilities.

Introduction

Canada’s financial system faces a brave new world of risks, from geopolitical fragmentation and cyber threats to climate-related shocks, that place new demands on its regulators. But the governance structure of the Office of the Superintendent of Financial Institutions (OSFI), the country’s federal prudential regulator, has remained largely unchanged for decades.

OSFI was established in 1987 to ensure the safety and soundness of the Canadian financial system, based on recommendations from the Estey Commission. It was formed by consolidating the Department of Insurance and the Office of the Inspector General of Banks.

A Superintendent, supported by deputies and staff, holds sole responsibility for prudential regulation and supervision. While OSFI is an independent agency, it is accountable to Parliament through the minister of finance. Its internal governance includes a Departmental Audit Committee (DAC), which advises on risk management, control, and governance frameworks, and an internal audit team that reports to the Superintendent.

This structure differs meaningfully from those of comparable domestic and international regulators. And there are reasons to ask whether its governance structure remains appropriate for today’s environment.

We start with the premise that, since 1987, governance practices, financial services, the risk environment, and OSFI’s mandate and activities have all evolved significantly. Yet the model underpinning OSFI’s structure (see Box 1) has not undergone a major review since the MacKay Task Force in 1998, nearly 30 years ago.

Historically, Canada’s financial system included five main groups: chartered banks, trust and loan companies, the co-operative credit movement, life insurance companies, and securities dealers. These pillars began to dissolve shortly after the formation of OSFI with the 1987 and 1992 revisions to the Bank Act, as large banks acquired trust and loan companies and securities dealers. Recently, some credit unions have become federally regulated.

Today, Canada’s financial sector faces a convergence of risks that challenge traditional prudential supervision and place new demands on regulatory governance. Beyond post-financial crisis concerns about capital adequacy and credit risk, the current landscape includes geopolitical tensions that could disrupt cross-border resolution and capital flows (Zelmer 2025), increasingly sophisticated cyber threats (including state-linked attacks [OSFI 2025]), and escalating physical and transition risks from climate change (IMF 2025a). While OSFI has strengthened its supervisory frameworks in areas such as cyber resilience and climate risk, these pressures highlight the importance of a governance structure capable of navigating complex trade-offs between stability, competitiveness, resilience, and public confidence.

OSFI’s responsibilities have also expanded. Since 2012, it has overseen the insurance activities of the Canada Mortgage and Housing Corporation (CMHC). In 2016, it introduced a mortgage stress test, increasing its direct impact on individual Canadians. More recently, the passage of Bill C-47 in 2023 requires OSFI to examine whether federally regulated financial institutions have adequate policies and procedures related to integrity and security.

Compared with its peers, OSFI’s governance model is unusual. Many comparable regulators operate with boards (OECD 2010). The OECD (2014) identifies several advantages of multi-member governing bodies: they are less susceptible to regulatory capture than a single decision-maker; they better balance judgment in complex, principles-based regulatory environments; and they provide collective support for strategic oversight. All three apply to OSFI. While its track record reflects strong leadership, distributing authority would reduce institutional vulnerability by design, rather than relying on any one individual. A multi-member body would also provide a structured forum for debating complex trade-offs and challenging internal decision-making as OSFI confronts emerging risks such as AI and cyber threats.

International counterparts following such practices include the UK’s Prudential Regulation Authority and Australia’s Prudential Regulation Authority. Domestically, newer regulators such as the Financial Services Regulatory Authority of Ontario (FSRA), along with securities regulators like the Ontario Securities Commission (OSC), have adopted board governance structures.

Given the evolving financial landscape, a shift from a single-head model to a multi-member structure is warranted. Regulating the financial system requires a balancing act that collective decision-making provides by offering a diversity of opinions, expertise, and perceptions. As OSFI’s activities expand into areas such as cybersecurity and financial institution governance, it also requires new subject-matter expertise to develop compliance and enforcement capabilities in new areas.

We therefore recommend that OSFI transition to a multi-member governance structure, including a board of directors and advisory councils. This would strengthen independence, enhance transparency and accountability, and align OSFI with best practices in regulatory governance.

OSFI’s governance model should also undergo periodic review – something that has not occurred since the MacKay Task Force nearly three decades ago (see Box 2). This absence has left the framework misaligned with international best practices. Conducting a formal review at least once every 10 years would ensure that the model remains current and fit for purpose in fulfilling OSFI’s mandate and Canadians’ expectations.

OSFI Expanded Responsibilities and Activities

Since the 2007-08 global financial crisis, OSFI’s mandate and responsibilities (Figure 2) have broadened significantly in response to rising systemic risks and a more complex financial landscape. As noted, OSFI oversees CMHC, particularly its commercial activities in the mortgage insurance sector – an area critical to housing market dynamics and, by extension, to household debt and consumption patterns.

OSFI has also taken a more proactive role in setting regulatory expectations. Since 2016, it has accelerated the issuance of guidelines on governance, capital adequacy, and insurance practices of federally regulated financial institutions (FRFIs). In some cases, these guidelines go beyond traditional supervisory functions and increasingly influence Canadians’ everyday financial experiences.

One prominent example is the Minimum Qualifying Rate (MQR) or “mortgage stress test” introduced by OSFI in 2018. It requires lenders to verify income and apply a minimum qualifying rate to uninsured mortgages. The stress test is designed to evaluate the solvency of mortgage holders under adverse interest rate conditions, reduce systemic risk in the housing market, and support sound financial management of financial institutions. While it strengthens system resilience, this approach may limit household credit availability and affect Canadians’ capacity to purchase homes.¹

More recently, the passage of Bill C-47 by the federal government in 2023 further expanded OSFI’s authority. It allows OSFI to assess whether FRFIs have adequate integrity and security policies and procedures. This change reflects the shift toward a broader conception of financial stability. As a result, the Superintendent’s responsibilities have grown in both complexity and impact.

Although OSFI has developed the in-house expertise² to manage its expanded functions, its evolving role would benefit from greater external input.³ Incorporating diverse perspectives would strengthen its ability to challenge prevailing internal perspectives and ensure that its regulatory approach remains well-informed, while anchored in its prudential mandate.

The Pros and Cons

Before making the case for transitioning OSFI to a multi-member model, it’s useful to set out the advantages and limits of each governance model. Regulators generally use three models. The first is a multi-member body that sets strategic direction and operational policy, while delegating regulatory decisions to a chief executive officer. The second is a commission model, also multi-member, in which a collective makes most substantive decisions. The third is a single-head model, where one individual holds primary decision-making authority.

The Organisation for Economic Co-operation and Development (OECD 2014) provides the established international framework for evaluating regulatory governance, including the choice between single-member and multi-member governance structures for independent regulators. It identifies when a multi-member governance model adds value, outlines the design considerations, and offers a framework for applying these factors to a specific regulator. Table 1 summarizes the main advantages and disadvantages of a multi-member body.

When a multi-member body adds value

The OECD (2014) identifies five factors in determining whether a multi-member governing body adds value.

Potential consequences of regulatory decisions: A collective is less susceptible to regulatory capture⁴ than an individual and benefits from a wider range of perspectives.
Need for diverse judgment: In complex or principles-based regulation, collective decision-making better balances judgment factors and minimizes the risks of varying judgments.
Degree of strategic guidance and oversight required: This is especially important when developing new regulations and deploying resources because a multi-member model provides the necessary collective support for strategic considerations.
Maintaining regulatory consistency over time: A group can better maintain consistency by providing “corporate memory” in decisions that rely heavily on judgment.
Decision-making independence: Boards are generally less susceptible to political or industry influence than a single decision-maker.⁵

What the single-head model offers that a multi-member model risks losing

By identifying when multi-member governance adds value, the OECD framework implicitly identifies the conditions under which a single-head model is better suited.

One of the clearest advantages of the single-head model is that responsibility is unambiguous. At OSFI, the Superintendent is directly accountable to the minister of finance, Parliament, and the public. Having a board does not automatically improve accountability. It can, if poorly designed, diffuse it.

The single-head model also enables faster, more decisive action. It avoids the delays of consensus-building and supports rapid responses to emerging risks or mandate changes. It can also minimize the risk of policy conflict that may arise when multiple board members hold divergent views.

These are not trivial considerations. As a microprudential regulator, OSFI must often respond rapidly to emerging risks and take swift decisions on a case-by-case basis. The ability to act without delay is valuable. A poorly designed multi-member body could slow responsiveness and introduce the kind of internal disagreement that undermines regulatory certainty. The OECD (2014) acknowledges this risk, noting that where a regulator has a high volume of time-sensitive decisions, the full governing body may need to delegate extensively.

The tension between models is genuine.

The OECD framework does not prescribe a single model but asks whether, on an honest assessment of the five criteria, the case for collective governance has been met. As the following sections argue, OSFI’s expanded mandate, the more complex risk environment, and the breadth of judgement now required shift that balance toward a multi-member model, provided the design risks are carefully managed.

The Evolving Risk Environment: A Case for Enhanced Governance

As this section demonstrates, Canada’s financial sector faces an unprecedented convergence of risks – geopolitical instability, cyber threats, climate change, and complex capital regulation trade-offs – that has expanded well beyond post-financial crisis concerns and fundamentally challenges traditional regulatory approaches. This shift raises the question of whether OSFI needs a new governance approach.

The answer is yes. As these risks grow in scope and complexity, OSFI’s governance structure should evolve accordingly. While the current model concentrates decision-making authority in a single Superintendent, a board could bring together experts in geopolitics, cybersecurity, climate science, international finance, and domestic economic policy to inform OSFI’s strategic direction. It would provide a forum for debating complex trade-offs, such as balancing financial stability with economic growth or weighing international regulatory coordination against domestic competitive concerns, in a more transparent and accountable manner. Most importantly, it would enhance OSFI’s legitimacy and public confidence in its decision-making during periods of intense scrutiny.

Geopolitical Risk and Cross-Border Vulnerabilities

Rising geopolitical tensions present fundamental challenges to Canada’s internationally active financial institutions. As Zelmer (2025) notes, weakening cross-border cooperation, particularly involving the United States, could make it harder to manage the recovery or orderly resolution of internationally active Canadian financial institutions during periods of distress. Foreign regulators may ring-fence assets within their jurisdictions, limiting Canadian authorities’ access to the capital and liquidity needed to protect domestic depositors and creditors. This risk is especially significant because Canada’s six major banks have substantial operations and exposures in the United States and other foreign markets.

These emerging and potentially politicized risks highlight the value of a board in providing independent, collective support for OSFI’s strategic direction.

Cyber Risk and Technological Threats

Cyber threats targeting financial institutions have increased in frequency and sophistication. In 2023, 26 percent of finance and insurance firms experienced cybersecurity incidents, compared with 16 percent across the private sector.⁶ Furthermore, the threat of cyberattacks remains high in Canada (IMF 2025b), and money laundering and fraud attempts from criminals and state-linked actors are becoming more advanced and difficult to detect (OSFI 2025). These activities will likely intensify with advances in AI and digitalization.

OSFI has acknowledged that foreign actors may target Canadian institutions for financial gains and geopolitical purposes (OSFI 2025). Repeated incidents in the financial sector could erode confidence and threaten its stability, causing spillovers to the rest of the economy.⁷

A 2025 IMF Financial Sector Assessment Program review of Canada found that while OSFI’s cyber risk supervisory framework is strong, gaps remained in coordination with federal and provincial authorities, and that OSFI’s integrated mandate enables it to detect advanced cyber threats beyond conventional risks (IMF 2025b). Given the complexity of these risks, a well-designed board with the right expertise could offer appropriate support in developing a strategic plan to mitigate these risks.

Climate Risks

Climate change presents both transition and physical risks to Canada’s financial system, with broader macroeconomic effects. It can reduce GDP (Dahlhaus 2025), increase inflation volatility (Duprey and Fernandes 2025), and negatively affect employment (Duprey et al. 2024). The 2016 Fort McMurray wildfire alone caused an estimated $9.9 billion in damages and reduced quarterly GDP by 0.4 percent (Statistics Canada 2024). These risks are expected to intensify, with projections indicating more frequent and severe weather conditions and longer wildfire seasons across much of Canada (IMF 2025a).

OSFI’s Guideline B-15 sets out expectations for FRFIs’ management of climate-related risks.⁸ However, the IMF’s recent assessment of climate risk in Canada’s financial sector recommends that OSFI strengthen its climate risk supervision through better data, coordination, and stress testing (IMF 2025a). A board with relevant expertise could help guide OSFI’s strategic response, while an advisory committee could support technical policy development in this area.

Domestic Regulatory Complexity: Basel III and Capital Requirements

Implementing Basel III reforms has created significant domestic challenges. In 2024-2025, OSFI faced intense public scrutiny over its approach to implementing the Basel III standardized capital floor (Zelmer 2024), with Superintendent Peter Routledge noting that the intensity of attention was new to OSFI and provided an opportunity to communicate more clearly to Canadians (OSFI 2024). The Superintendent noted that some observers argued that OSFI’s decision would have “a consequential and negative impact on economic growth, arguing that dramatically rising capital requirements
would slow lending and then economic growth” (OSFI 2024).

OSFI’s decision to indefinitely defer increases to the Basel III standardized capital floor level reflected concerns about competitive balance in the international banking system, as uncertainty remained about when other jurisdictions would fully implement Basel III.⁹ These are precisely the kinds of complex, multi-dimensional trade-offs that a board, equipped with expertise in international finance, economics, and competition policy, could be designed to support and challenge. A structured deliberative process within a governing board could provide a forum to assess these issues transparently and reduce perceptions of reactive or politically influenced decision-making.

The General Case for Multi-Member Governance at OSFI

The previous sections have shown that, across multiple dimensions of OSFI’s expanded mandate and activities, a multi-member governance structure could create net benefits over the current single-head model. This section shows how OSFI’s governance structure is out of step with comparable regulators domestically and internationally and draws lessons for reform.

International Comparison of the Governance Structures of Financial Institutions’ Regulatory Supervisors

We compare OSFI’s governance structure with the Australian Prudential Regulatory Authority (APRA), the UK’s Prudential Regulatory Authority (PRA), and Switzerland’s Financial Market Supervisory Authority (FINMA). All have similar mandates: they regulate financial institutions but are not responsible for promoting consumer protection.¹⁰

APRA uses a commission model that supports collective decision-making and incorporates a range of perspectives, thereby reducing dependence on any single leader. Its executive board of three to five government-appointed members, including the CEO as chair, manages operations and sets strategy. However, the responsibility for balancing immediate operational demands with long-term strategic priorities ultimately remains concentrated in a single authority. A clearer separation of these roles might yield a more effective balance. Consequently, this governance approach remains vulnerable to some of the same challenges faced by the single-head model. Furthermore, a lack of external views may hinder strategic decisions, given that the members are all employees and thus not independent of APRA.

Switzerland’s FINMA represents a cleaner governance board model and is widely seen as best practice (OECD 2014). An independent board of seven to nine expert members from academia and industry sets the strategic oversight and long-term planning, and oversees an executive team led by a CEO. No FINMA employees or ministry of finance officials sit on the board, ensuring independence. Its architecture creates a clear distinction between strategic and operational management. The board enhances the executive team’s accountability, and its composition strikes the right balance of multidisciplinary expertise between market practitioners and academics. Bringing expertise from law, finance, economics, and insurance helps align long-term strategy with evolving risks. However, safeguards are needed to prevent decision-making delays and mitigate potential biases.¹¹

The PRA in the UK functions uniquely as part of the country’s central bank, and the Bank of England (BoE) employs the PRA staff. As a microprudential regulator, the PRA focuses on ensuring individual financial institutions are well capitalized and avoid excessive risk-taking, but through the lens of the effects those firms can have on system stability.¹²

Its structure is similar to the APRA’s in that it’s also governed by a commission, the Prudential Regulation Committee (PRC). At least six external expert members appointed by the government sit on the PRC, which makes it more independent.¹³ External members bring both market experience and academic insight, balancing practical relevance with historical and policy context. However, the presence of the BoE Governor on the board of both institutions, though a deliberate institutional choice given the PRA’s mandate orientation toward the systemic effects of firm-level risk, may raise questions about accountability and the separation of firm-level and system-level considerations in a crisis.

While OSFI’s single-head governance model offers advantages, experience across comparable jurisdictions reinforces the view that a multi-member governance structure is the most adequate for financial sector regulators. Diverse expertise and collective judgment improve decision-making and help regulators meet increasingly complex mandates. Given OSFI’s similar responsibilities, industry context, and evolving risk environment, these international experiences offer practical lessons for transitioning to a multi-member structure.

The Evolution of Provincial Financial Regulators

Recent Canadian reforms also support this shift. In 2022, the Ontario government revised the governance structure of the OSC (see Figure 3)¹⁴ to embrace evolving governance best practices as recommended by the Ontario Capital Markets Modernization Taskforce. The Taskforce determined that the OSC’s previous single-headed leadership structure hindered strategic oversight and operational execution, thereby limiting the organization’s overall effectiveness. It separated the Chair and CEO roles and established a board of directors (Capital Markets Modernization Taskforce 2021). Under this new model, the CEO oversees day-to-day regulatory operations, while the board sets strategic direction and governance.

Prior to that, Ontario adopted modern governance standards when it created FSRA in 2019, replacing FSCO and DICO with an agency led by an independent board and a separate CEO responsible for day-to-day management (FSRA 2025). The board sets strategic direction, oversees governance, and monitors the regulator’s performance against its mandate. The Chair of the Board serves as the primary liaison with the responsible ministry. The board has 12 members (up to 11 independent permitted plus the CEO), all with financial sector experience.¹⁵

The Canada Deposit Insurance Corporation as Institutional Comparator

The case for external board governance at OSFI is not limited to international and provincial precedents. The Canada Deposit Insurance Corporation (CDIC), which is part of Canada’s federal financial safety net, has a similar institutional structure.

CDIC operates with a board of directors, handles institution-specific supervisory data of comparable sensitivity to OSFI’s, and carries a mandate – deposit insurance, financial system stability, and resolution authority – that is functionally interdependent with OSFI’s prudential supervision role.

CDIC’s board comprises 12 members: six ex officio public sector directors drawn from the Department of Finance, the Bank of Canada, OSFI, and FCAC; and six private sector directors appointed by the Governor in Council for terms of up to four years. The CDIC Act¹⁶ bars current federal public servants, members of Parliament, and anyone affiliated with a federal or provincial financial institution from sitting on the board as private sector director. This exclusion addresses conflicts of interest while preserving access to relevant expertise. This demonstrates that statutory design can resolve the tension between independence and sectoral knowledge without foreclosing either.

The board’s mandate extends beyond administrative oversight to include strategic direction and decision-making authority over interventions in member institutions. These decisions are sensitive and time-critical, and often cited as incompatible with OSFI’s operating environment. CDIC’s experience suggests otherwise: a board can exercise strategic authority without displacing management.

Confidentiality concerns are also manageable. CDIC’s board routinely handles granular information on member institutions, subject to the conflict-of-interest rules and confidentiality obligations set out in the CDIC Act and the FAA. The practical management of confidential supervisory information within a board governance structure can be an established operating condition. There is no clear reason why similar arrangements could not function at OSFI, which is subject to comparable statutory confidentiality provisions and operates within the same inter-agency information-sharing framework.

The Office of the Auditor General of Canada has validated this model,¹⁷ finding CDIC’s governance sound and its board effective. This is further evidence that board governance of a federal financial body operating in a confidential supervisory environment is institutionally sustainable and withstands rigorous independent scrutiny over time.

In addition, the OSFI Superintendent already sits on CDIC’s board as an ex officio member, participating in board governance. The Superintendent is therefore already a participant in board-level governance of a federal financial institution operating under the same confidentiality constraints.

Taken together, the CDIC model helps in making the case for an OSFI board and shows that confidentiality constraints don’t render external governance impractical and need not compromise operational independence. The relevant question for reform is not feasibility, but how to define the boundary between board oversight and the Superintendent’s authority to preserve supervisory independence. We turn to that question next.

OSFI’s Next Review

The preceding sections have shown that board governance can coexist with operational independence across a range of international and domestic institutional comparators. The next question relates to design – how to structure such a board and allocate authority among the board, the Superintendent, and the minister.

OSFI’s mandate and governance structure have not been reviewed since 1998. This lack of periodic reviews is itself a structural gap. Comparable financial regulators in Canada and abroad undergo regular assessments of their mandate, governance, and accountability. OSFI has not. A review is warranted not because of weak performance, but because its governance framework has not been evaluated against current institutional standards, peers, or international norms in nearly 30 years.

A review focused on board governance should address, at minimum:

What public policy outcomes should OSFI deliver?
What operational, legislative, or regulatory changes would improve its effectiveness in the face of changing market realities?
Would a new governance model strengthen or weaken political oversight needed to keep legislation and enforcement up to date?
How would alternative governance structures affect the risk of stakeholder regulatory capture?
How can governance design account for Canada’s unique federal/provincial division of financial sector regulatory responsibilities and ensure desired regulatory outcomes can be effectively achieved?
How should statute define the boundary between board strategic oversight and the Superintendent’s authority?
What appointment criteria and processes would ensure board independence without limiting access to relevant financial sector expertise?
How should the board be accountable to Parliament, and how would this differ from the Superintendent’s reporting obligations?
What, if any, role should the board play in the use of macroprudential tools such as the Domestic Stability Buffer?
How should the accountability relationship between the Superintendent and the minister of finance be preserved or clarified in the context of a multi-member governance structure?

The next section addresses some of these questions and sets out a proposed governance architecture that draws on the institutional comparators examined and the design lessons from the MacKay Taskforce.

A Roadmap to Improve OSFI’s Governance

We now turn to how OSFI can improve its governance structure by incorporating diverse perspectives and enhancing its credibility with stakeholders. Effective governance frameworks for government agencies must safeguard against undue political or industry influence.

While OSFI maintains a professional relationship with regulated institutions, there is no evidence of regulatory capture within the Canadian financial system (IMF 2014). Nonetheless, a board structure could further strengthen OSFI’s independence by reducing vulnerability to such influence. Collective governance bodies are less susceptible to capture than individual decision-makers and can enhance institutional credibility (OECD 2014; Jabotinsky and Siems 2017). This is not to suggest that any Superintendent has been susceptible to such influence. Rather, distributed authority and diverse membership provide a durable safeguard that does not depend on any one individual.

Given OSFI’s expanding mandate and activities, the board could provide strategic oversight and support, while reinforcing institutional memory and consistency. It would allow the Superintendent to focus more on day-to-day operations while contributing to long-term strategy.

To achieve this, we recommend two changes: an independent board of directors to provide strategic oversight and expertise; and advisory councils to supplement OSFI’s knowledge in emerging risk domains such as cybersecurity and artificial intelligence.

1. Board of Directors

The board would:

Approve strategic direction, policies, culture, and risk appetite, and provide independent advice to the Superintendent.
Be accountable to Parliament and subject to its oversight and scrutiny.
Periodically review OSFI’s policy effectiveness (e.g., the MQR stress test or the Domestic Stability Buffer).
Approve the budget, review OSFI’s Annual Risk Outlook, and provide a challenge function.
The board would not:
Review institution-specific supervisory decisions, preserving confidentiality.¹⁸
Manage OSFI’s operations.
Execute decisions on prudential tools such as the MQR or the Domestic Stability Buffer.

Structure of the Board

To provide OSFI with diversity of expertise and perspective, the board of directors should:

Exclude members from FISC and regulated industries to maintain independence.¹⁹
Draw members from academia, former regulators (including those from other jurisdictions), risk specialists, and former industry practitioners.²⁰
Include an independent chair and five to nine members with multidisciplinary expertise. The Superintendent should serve as a member, and a government representative (e.g., deputy minister of finance) could serve ex officio.²¹
Use three-year renewable terms with staggered appointments to ensure continuity.²²

This structure differs fundamentally from the existing DAC. The DAC is an advisory body within OSFI that provides independent advice and recommendations to the Superintendent on risk management, internal controls, and governance frameworks. The DAC is composed of a majority of external members drawn from outside the federal public administration, with relevant experience in private and public sector financial reporting. Members are selected by the Superintendent and approved by the Treasury Board. At least one member must hold a professional accounting designation. The Superintendent sits as an ex officio member.

The proposed board of directors differs from the DAC in many respects (Table 2). Where the DAC looks backward to verify that established processes were followed, the board looks forward to challenge whether OSFI is pursuing the right strategic priorities. Where the DAC reports to the Superintendent, the board exercises independent oversight over the Superintendent. And where the DAC has no parliamentary accountability function, the board would serve as a formal mechanism linking OSFI’s governance to parliamentary scrutiny, which is a function that currently does not exist.

The distinction is substantive, not incremental: the DAC strengthens process integrity, while the board would strengthen the legitimacy of OSFI’s direction. Both are necessary, but one cannot substitute for the other.

2. Advisory Committees

Financial regulators commonly use advisory committees to access industry expertise and incorporate market perspectives into policymaking. For example, the OSC is supported by seven distinct third-party advisory committees to provide input on new policies, assess regulatory impacts, and communicate stakeholder concerns.²³ These committees focus on specific technical or sectoral topics and provide advice to staff, drawing on both market participants and regulators.

Internationally, the UK’s PRA uses the Practitioner Panel to represent the interests of industry practitioners to fulfill a statutory duty. This independent panel provides expert input on the PRA’s policies and constructive challenge and advice to ensure that practitioner perspectives are reflected in regulatory decision-making. It meets about six times a year with PRA leadership and has contributed feedback on a range of policy issues, including the implementation of Basel 3.1.

While it is true that financial services regulators already incorporate the views of market participants and stakeholders into their regulatory rules through public consultations, they control these processes by setting the agenda and framing the questions. This approach is episodic and tied to specific rule-making initiatives.

Advisory committees would:

Provide OSFI with a diversity of expertise and perspectives on risk-related issues, particularly in emerging areas where in-house capacity may be limited (e.g., cybersecurity).²⁴
Challenge OSFI’s policy responses on issues such as technology, security, and integrity risks.

Transparency around such bodies would contribute to the credibility of OSFI’s policy responses. Publishing the membership of each group and any recommendations that the body may provide to OSFI would further enhance credibility.

Advisory committees would not:

Engage in federally regulated financial institution work, preserving confidentiality.²⁵
Manage OSFI’s operations, including staffing, budgeting, and internal structure.
Review OSFI decisions and actions for specific institutions.
Participate in OSFI-specific decisions regarding systemic prudential tools such as the MQR or the Domestic Stability Buffer.

Structure of the Advisory Committees

Advisory committees should:

Be independent.
Include members from academia, regulatory bodies (including other jurisdictions), risk specialists, and selected industry practitioners.²⁶
Have an independent chair and at least five expert members with multidisciplinary backgrounds.
Be reviewed periodically to ensure expertise remains aligned with emerging risks, informed by sources such as OSFI’s Annual Risk Outlook and the IMF’s Global Financial Stability Report.
Be time-limited where appropriate (e.g., three-year terms or until a specific policy issue is addressed), reflecting their specific topic of focus.²⁷

While an independent board and advisory committees will minimize the risk of industry influence through normal course operations, it would not, on its own, address the issue of accountability.

Since OSFI derives its authority from Parliament, we recommend that Parliament play an active role in overseeing OSFI. One option would be to legally require OSFI to regularly appear before the House of Commons Standing Committee on Finance (FINA) and the Senate Standing Committee on Banking, Commerce, and the Economy (BANC). To our knowledge, the Superintendent last appeared before BANC in October 2025 and before FINA in 2024.

Regular appearances have proven effective for other institutions, such as the Bank of Canada, by strengthening transparency without compromising independence or responsiveness to emerging risks. Although not legally required to do so, the Bank of Canada appears before Parliament at least twice a year (Binette and Tchebotarev 2019). In 2024, the Standing Senate Committee on Banking, Commerce, and the Economy released a report on the conduct of monetary policy in Canada, in which it recommended formalizing this practice to strengthen accountability and transparency (Senate 2024).

In addition to stronger governance and parliamentary oversight, OSFI would benefit from a structured periodic review of its governance framework, similar to the IMF’s Financial Sector Assessment Program but focused on the regulator itself. In its nearly four decades of existence, the MacKay Task Force has been the only review of OSFI’s governance, and that was nearly 30 years ago. Establishing a formal review cycle, at least once every decade, would ensure that OSFI’s governance remains current, aligned with international best practices, and capable of supporting an increasingly complex financial sector.

Conclusion

The OSFI Act states that its purpose “…is to ensure that financial institutions and pension plans are regulated by an office of the Government of Canada so as to contribute to public confidence in the Canadian financial system.” Since its creation in 1987, OSFI has played an important role in upholding that confidence. Yet the environment in which Canadian financial institutions operate has changed dramatically and continues to evolve due to forces such as digitalization, artificial intelligence, climate-related risks, and geopolitical uncertainty.

Modernizing OSFI’s governance is both timely and necessary. We recommend moving from a single-head model to a multi-member structure, including a board of directors and advisory councils, to broaden the perspectives informing policy decisions. Further, enhancing transparency and accountability through regular appearances before Parliament would reinforce OSFI’s contribution to public confidence in the financial system.

OSFI should also adopt a formal review cycle (at least once every 10 years) to ensure its governance remains aligned with best practices and responsive to emerging risks. Publishing regular updates, conducting consultations, and providing plain-language summaries of board decisions and advisory committee recommendations would further enhance transparency.

Together, these reforms will help OSFI remain a credible and adaptive regulator.

The authors extend gratitude to Hande Bilhan, Glen Hodgson, Phil Howell, Jeremy Kronick, Victoria Mainprize, Peter MacKenzie, Parisa Mahboubi, and several anonymous referees for valuable comments and suggestions.

Jamey Hubbs currently serves on the board of Laurentian Bank. The authors retain responsibility for any errors, and the views expressed in this paper do not reflect those of their past or current affiliations.

For the Silo, Mawakina Bafale and Jamey Hubbs/C.D. Howe Institute.

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Politics

Can Factory Built Homes Solve Canada Housing Crisis?

August 5, 2025 The Silo Leave a comment

August, 2025 – Canada is not building homes quickly enough to meet rising needs, and red tape combined with low productivity is intensifying pressure on the sector. A new report from the C.D. Howe Institute explores how innovative construction technologies could help accelerate delivery and improve efficiency – if supported by the right policy conditions. The Silo predicted this dilemma over a decade ago and highlighted some of these issues and solutions in this “Tiny House” post.

In the report titled “Building Smarter, Faster: Technology and Policy Solutions for Canada’s Housing Crisis,” Tasnim Fariha outlines how innovative construction technologies – such as modular and panelized systems and mass timber – can enhance labour productivity in residential construction. While these approaches are not a silver bullet, they may offer valuable tools for increasing housing supply and managing construction workforce constraints.

Building Smarter, Faster: Technology and Policy Solutions for Canada’s Housing Crisis

Canada’s housing shortage is worsening. The Canada Mortgage and Housing Corporation (CMHC) estimates that to restore 2019 affordability levels in the market, housing starts need to be doubled. CMHC is projecting a need for 430,000–480,000 housing starts annually. But the country is falling far short. Labour shortages, weak productivity in residential construction, and slow permitting processes are making it harder to meet needs.
Innovative construction methods – including modular, panelized, mass timber, and 3D printing – offer potential to improve productivity and accelerate housing delivery, but adoption remains limited due to high upfront costs, fragmented regulations, and insufficient data on performance in the Canadian context.
The federal government’s $26 billion Build Canada Homes initiative signals a strong commitment to innovation, yet without tackling regulatory, financial, and logistical obstacles, these technologies won’t scale or deliver meaningful cost savings. To realize the productivity benefits, governments must streamline permitting, harmonize building code interpretation, reduce development charges, and support workforce training, among other steps.

Introduction

Canada’s housing sector is experiencing a multifaceted crisis characterized by escalating prices, acute affordability challenges, and a critical misalignment between housing supply and population growth. Demographic pressures – such as strong population growth – combined with economic factors like elevated interest rates, soaring housing costs and land prices are reshaping Canada’s housing market. Escalating housing costs have effectively priced out many potential buyers, compelling a larger proportion of the population to enter the rental market, thereby driving increased investment in rental and multi-family housing units (Statistics Canada 2024). However, those units have become much more expensive to build, too, which is reflected in higher rents and fewer starts than necessary to meet demand.

This modal shift reflects both market adaptations to economic constraints and broader structural changes in housing demand and affordability. On top of that, long-standing restrictive regulatory frameworks, including restrictive zoning regulations, substantial development charges, and land use constraints, contribute to housing supply limitations and price escalations (Dachis and Thivierge 2018). Addressing these structural obstacles is crucial for ameliorating persistent supply shortages, rising costs, and broader affordability challenges. The industry has been raising these issues for several years now. For example, in early 2024, the Canadian Home Builders’ Association (CHBA) released a comprehensive sector transition strategy identifying specific recommendations for systematic change in four areas: financial system, policy, labour, and productivity. In 2025, the Canada Mortgage and Housing Corporation (CMHC) emphasized that the pace of housing starts must double to gradually restore affordability to 2019 levels.

Many countries are leveraging prefabrication technologies – such as modular construction, mass timber, panelized systems, and on-site 3D printing – to accelerate homebuilding, increase productivity in the face of tight labour markets, and improve sustainability. In Canada, however, adoption remains limited amidst industry-specific challenges, complex regulations, and insufficient incentives to support these innovations.

Despite their promise, these technologies have not consistently delivered cost savings in the Canadian context. Modular, panelization, mass timber, and 3D concrete printing methods often face higher upfront costs, insurance premiums, or material expenses. To support the adoption of these innovative construction methods in Canada, more country-specific evidence is needed to guide policymakers, regulators, and developers. While international data highlight its benefits – such as speed, cost-effectiveness, and sustainability – Canadian decision-makers require more local insights. Academic-industry partnerships can help generate this evidence by analyzing best practices, labour dynamics, project outcomes, and measurable savings within the Canadian context (Dragicevic and Riaz 2024).

This paper aims to identify the main challenges facing the adoption of innovative home-building technologies in Canada. Drawing on a range of sources – including academic research, government and industry reports, and documents from builders’ associations – it offers an introductory examination of the issues at play. It does not present innovative construction methods as the sole solution to Canada’s housing crisis, but rather as a tool to improve labour productivity and accelerate residential development, particularly when supported by stable market conditions, coordinated government action, and a supportive regulatory environment. While recognizing the potential of these technologies, the paper highlights the need for more publicly available data and independent research to benchmark their performance against traditional building methods. The key recommendations from this paper – aimed at addressing the critical barriers of risk, complexity, and inconsistency – include:

Financial Incentives and Risk Mitigation: Low-cost financing and tax credits to de-risk investments by builders, and construction-financing insurance for off-site construction to boost lender confidence; standardized mortgage and home insurance rules to reduce uncertainty for buyers; and tax incentives for maintenance and repairs of homes built with innovative technologies to build trust among lenders and buyers.
Regulatory Streamlining and Efficiency: Expedited fund disbursement by CMHC to accelerate project timelines of purpose-built rentals and affordable housing; streamlined permitting processes and fast-track approvals for innovative projects; elimination of duplicative inspections for modular builds to reduce delays; reduction of development charges and related fees to improve overall housing affordability; and further research to assess how Canada’s multi-layered regulatory framework compares with international practices and whether it may be limiting competitiveness.
Standardization and Harmonization Across Jurisdictions: Standardizing interpretation of building codes across municipalities to ensure consistency and avoid costly, time-consuming redesigns; standardizing – and where necessary, harmonizing – transportation regulations on modular and prefabricated components across provinces to facilitate efficient, large-scale production and delivery.

Current Challenges in the Housing Market

Supply Shortage

Currently, Canada is not building enough homes to meet its needs. In fact, the housing shortfall isn’t closing – it’s widening. When CMHC first sounded the alarm in 2022, it estimated that Canada needed to build roughly 500,000 housing units per year through 2030 to bring affordability back to early-2000s levels. Last year, the country started building just 245,000 units – less than half the target. Now, CMHC’s latest projections scale down the target but still call for 430,000 to 480,000 housing starts annually over the next decade, merely to restore affordability to 2019 levels. In regions like Ontario, British Columbia, Nova Scotia, and Montreal, the shortfall is even more severe.

Urban centres are disproportionately impacted by limited housing supply. Housing costs are dramatically outpacing income growth, creating substantial barriers for middle-class families, first-time buyers, and young professionals seeking homeownership. Shortage of supply and higher housing costs suppress the formation of new, smaller households, pushing more people into shared or doubled-up living arrangements. Building more housing would allow Canadians to form the types of smaller households they increasingly prefer, such as living alone or only with a partner or children (Lauster and von Bergmann 2024). A striking indicator of this supply crisis is the unprecedented decline in dwellings per 1,000 people (see Figure 1), a reversal from Canada’s historical trend of increasing housing supply. This decline highlights the pressing need for strategies to realign the housing supply with population needs.

Productivity Challenges

Residential construction productivity has not recovered in the post-pandemic period, contrasting with the gradual recovery in the broader construction industry and the overall economy (Figure 2). Recent economic analyses show the industry is expanding by increasing its share of the overall workforce while its share of output is simultaneously declining (Caranci and Marple 2024).

One contributing factor may be the construction sector’s tendency to retain its existing workforce during downturns, avoiding mass layoffs to preserve skilled labour for future booms. Despite the sluggish output growth from this sector since 2022, it continues to expand in terms of employment. For example, between 2020 and 2023, employment grew by 15 percent across all industries and 21 percent in construction overall, while residential building construction saw a 26 percent increase (Statistics Canada 2025a). While this strategy may protect long-term capacity, it can also depress short-term productivity metrics during periods of reduced construction activity. If this dynamic persists, it could have long-term consequences for Canada’s housing infrastructure and broader economic growth.

Affordability Crisis

Despite the urgent need for housing, affordability remains a barrier that limits the purchasing power of many Canadians and prevents the market from meeting housing needs. Home prices have risen nearly 40 percent since 2016, contributing to a significant decline in homeownership across the country. While recent changes to down payment rules and extended amortization periods aim to support buyers, high interest rates continue to erode affordability and heighten mortgage insecurity for both new and existing homeowners. Development taxes – including development fees, lot levies, and amenity fees – have increased by 700 percent over the past two decades and can now account for up to 25 percent of a home’s sale price (CHBA 2024). Between 2011 and 2021, the share of Canadians living in owned homes decreased by 2.5 percent, with nearly all age groups experiencing a drop in homeownership rates.

This shift has led to an increased demand for rental housing, prompting developers to prioritize the construction of more budget-friendly living spaces. According to the CMHC, 72 percent of all housing starts in the first half of 2024 were apartments, with 47 percent of these designated for rental units. However, while increased rental construction is a positive trend, it remains insufficient to close the affordability gap. More housing units for homeownership are required, too. Rising home prices, population growth, and high mortgage rates have driven rental costs higher, further exacerbating affordability challenges and placing additional strain on low-income households. The growth of corporate rental ownership by Real Estate Investment Trusts (REITs), as well as secondary rentals by investors, has played a notable role, too. The average rent for a typical two-bedroom unit across Canada rose by 45 percent between 2018 and 2024, according to the CMHC Rental Market Survey.1 In 2022, Statistics Canada reported that 245,900 households were on the waitlist for social and affordable housing, underscoring the critical need for increased housing supply.2

Labour-Augmenting Home Building Technologies: A Promising Tool for Easing the Housing Crisis

Technological innovation in construction may offer a promising path to improving labour productivity (see Box 1 for a comparison of conventional and innovative homebuilding methods). These labour-augmenting technologies3 have the potential to significantly enhance efficiency and accelerate the pace of homebuilding. Labour-augmenting technologies allow workers to produce more – whether in quantity, quality, or both – within the same amount of work hours. They align with the concept of increasing the capacity of human capital without expanding the workforce. Such progress can arise from various sources, including advancements in machinery, software, work processes, or the education and skills of the workforce. Research suggests that labour-augmenting technological change stimulates gross domestic product (GDP) growth and increases long-run total employment. In open, developed economies, focusing on enhancing the efficiency and productivity of skilled workers yields the greatest benefits (Ross et al. 2024).

Conventional homebuilding methods rely heavily on strenuous physical labour and are vulnerable to weather-related disruptions and higher on-site safety risks. Although specific data on the residential construction sector are limited, the construction industry as a whole remains one of the most hazardous sectors, with on-site building particularly prone to accidents due to the complex and variable nature of the work environment. In contrast, modern homebuilding technologies – such as off-site prefabrication and digital design tools – can reduce project failure rates, shorten construction timelines, enhance defect detection, and significantly improve worker safety (Patel and Kaushal 2024). Working in a stable, climate-controlled factory setting – without the disruptions of a transient worksite – can lead to greater worker satisfaction and productivity (Hoínková 2021).

Modular construction has been around for several decades, involving off-site fabrication in safe, controlled settings and reducing workers’ exposure to harsh outdoor environments. Case studies from countries like Australia, the UK, and the US suggest that modular approaches can reduce construction timelines by 20 to 50 percent compared to traditional methods (Bertram et al. 2019). In panelization, prefabricated panels are assembled quickly on-site, eliminating sequential tasks and allowing different stages of construction to occur simultaneously. This significantly reduces project completion times while minimizing safety risks and physical labour demands. Compared to modular construction, panelization is often more flexible and efficient in terms of storage, transportation, and on-site logistics, making it a more scalable solution in certain contexts. Cross-Laminated Timbers (CLT) used in mass timber construction are easier to handle and assemble. Timber is a suitable material for prefabrication, and its insulating properties create safer working conditions in cold weather. Although somewhat more expensive than other materials, mass timber is valued for its ability to store carbon, contributing to more sustainable construction practices.

Another advantage of shifting to off-site construction is a reduced reliance on labour, especially as Canada’s construction industry faces the retirement of nearly 260,000 workers (22 percent of the workforce) by 2030, requiring over 309,000 new recruits (BuildForce Canada 2021). Research on the global construction sector shows that off-site construction offers a promising solution by enabling 30 to 60 percent of project work to be completed in controlled environments, leading to a potential 5 to 10 times productivity boost through better labour management (Barbosa et al. 2017). Controlled settings also improve worker attraction and support the application of Lean Construction principles. Engaging higher-skilled labour in tasks such as integrating electrical and mechanical systems or operating automated machinery can yield significant productivity gains. Meanwhile, lower-skilled workers can still be effectively engaged in other aspects of the prefabrication process. This approach helps ease the industry’s skilled labour shortage while improving supervision, safety, quality, material efficiency, and schedule adherence (Forestry Innovation Investment 2021).

The time savings and productivity gains cited above are largely drawn from global data across the broader construction sector and may not fully reflect the experience of residential construction in Canada, where adoption of these technologies has been slower and less standardized. The wide variation in estimated time savings often stems from differences in regulatory environments, labour availability, factory capacity, and the degree of integration with on-site workflows. Still, these figures illustrate the potential of innovative construction methods to enhance efficiency. More Canadian-specific research is needed to quantify the net productivity gains – both in time and cost – across different home-building technologies.

Demographic and regional shifts strengthen the case for modular and prefabricated housing. Urban growth, ageing populations, and smaller households are driving demand for compact, denser housing in central areas where land is limited and speed is essential. Modular construction supports this need through rapidly deployable fourplexes, mid-rises, and Accessory Dwelling Units (ADUs) on infill sites – smaller, self-contained homes located on the same lot as a primary residence. It has also proven effective for student housing, offering speed and flexibility. For example, Selkirk College’s residence in BC used a hybrid of modular and mass timber construction to reduce waste, lower costs, and accelerate delivery, earning high marks for energy efficiency while meeting urgent student housing needs.

Similarly, Trinity Western University’s Jacobson Hall in BC was built in just nine months, and the University of British Columbia’s (UBC) 18-storey Brock Commons Tallwood House saw a more than 10 percent reduction in build schedule, with the structure completed in under 70 days after prefabricated panels arrived on-site. In Northern and remote communities like Nunavut and Northern Ontario – where housing needs are urgent and labour shortages acute – off-site construction allows homes to be built in southern factories and rapidly assembled on-site, bypassing the logistical and workforce challenges of traditional construction.

Lastly, it is crucial to assess Canada’s position on the production possibility frontier (PPF), which represents the maximum number of homes that can be built using available resources, such as labour, materials, and technology, without overextending or underutilizing them. Canada’s litany of problems includes high construction costs, elevated mortgage rates, soaring house prices, adverse weather conditions, and regulatory barriers like zoning laws and building codes, along with a lengthy permitting process. So it is reasonable to infer that Canada is currently operating inside the PPF. This indicates productive inefficiency. The country is not fully leveraging its resources to produce the maximum number of homes possible (productive inefficiency may not be directly quantifiable in precise terms due to data limitations). However, in a more conducive environment where regulatory hurdles are reduced and permit approvals are quicker, labour-augmenting technological advancements could shift the frontier outward, increasing labour productivity. This shift could enable Canada to build more homes more quickly and efficiently, helping to address the ongoing housing shortage.

Where Does Canada Stand on Housing Innovation?

Many countries are leveraging modular construction and mass timber to accelerate homebuilding and improve sustainability. While Canada has begun to explore similar approaches to those used in the US and Australia, its adoption has been slower. The reason: structural barriers, regulatory complexities, and a lack of appropriate support. Scandinavian countries, like Sweden, have embraced off-site construction at scale, where 96 percent of homes are built off-site and 84 percent of detached homes use prefabricated elements (Modular Intelligence 2024). These countries benefit from economies of scale, smaller geographies and unified building codes, with higher volumes justifying the upfront investment in off-site manufacturing. Although a direct comparison of productivity or construction costs between Canada and Sweden is difficult due to differences in labour markets, regulations, and building types, off-site construction has proven more efficient than traditional methods within the Scandinavian context. This relative efficiency has driven greater industry uptake and enabled more advanced forms of prefabrication to emerge – supported by long-term investment, automation, and integration into mainstream housing delivery. Moreover, in Europe and Asia, prefabricated construction differs from that in North America in both the materials used and the size of modules or panels (Forestry Innovation Investment 2021). Understanding how these regions arrived at their current practices can offer valuable insights for industry leaders and policymakers.

Recognizing the urgent need for technological innovation to address the current housing crisis, the Canadian government announced a $600 million package in the 2024 budget. This includes a $50 million Homebuilding Technology and Innovation Fund to scale up and commercialize technologies like modular and prefabricated homes, $500 million to support rental housing using modular construction, and $11.6 million to develop a Housing Design Catalogue featuring standardized and efficient blueprints. The Housing Design Catalogue, released earlier this year, offers standardized low-rise designs focused on traditional construction to support gentle density and infill across Canada, with plans to include modular and prefabricated methods in future updates.

Greater potential for transformation lies in the recently announced initiative by the federal government, an agency called Build Canada Homes (BCH). It aims to catalyze the housing industry and create higher-paying jobs by offering $25 billion in debt financing and $1 billion in equity financing to support innovative Canadian prefabricated home builders. Its premise is that prefabricated and modular housing methods have the potential to reduce construction time by up to 50 percent, cut costs by 20 percent, and lower emissions by 22 percent compared to traditional building approaches. BCH also plans to issue bulk orders to manufacturers to stabilize demand, promote the use of Canadian materials like mass timber and softwood lumber, and expand apprenticeship opportunities to grow the skilled trades workforce.

It is too early to assess the impact of these initiatives. The distribution of funds involves lengthy bureaucratic processes, and the market requires time to adapt. Research and development, being inherently time-intensive, further slows immediate results. While these initiatives may hold significant promise for addressing Canada’s housing crisis – particularly in an environment with fewer structural and regulatory barriers – their effectiveness depends on first tackling the core obstacles that continue to hinder housing development and discourage investment in productivity-enhancing innovations.

Government support plays a critical role in driving a sector’s success and growth. As part of the HousingTO 2020-2030 Action Plan,4 the City of Toronto committed to creating 1,000 new modular homes. By 2021, 250 homes were approved, and since then, 216 modular homes have been completed, contributing to the city’s efforts to address housing shortages and provide affordable living spaces. A report from the Auditor General of the City of Toronto5 stated that due to incomplete data and lack of benchmarking, the effectiveness and comparability of modular construction versus traditional methods – regarding cost and speed – could not be assessed. It recommended improvements in project planning, cost monitoring, and data collection to allow for clearer evaluations in the future. Vancouver is also utilizing temporarily available space to build modular affordable housing with support from CMHC and the Vancouver Affordable Housing Agency (VAHA). Calgary and Edmonton are adopting similar initiatives.

In 2020, the National Building Code of Canada (NBC) increased the limit for mass timber construction from 6 storeys to 12 storeys, reflecting advancements in technology and growing confidence in the safety and sustainability of mass timber. Last year, British Columbia updated its provincial building codes to allow mass-timber structures up to 18 storeys. However, due to higher costs, adoption has so far been largely limited to public sector projects.

Canada’s housing market is gradually adapting and embracing innovative technologies at a faster pace. A growing number of companies are now offering innovative housing solutions in Canada, providing faster, sustainable, and innovative alternatives to traditional construction methods. The Kakatoots (Siksika Nation) or Star Lodge in Alberta,6 the Leamington project in Ontario,7 and the Merritt and UBC project in British Columbia8 are some of the ongoing 3D-printed home projects designed to combat the housing crisis in areas experiencing severe labour shortages.

Key Barriers to Housing Innovation

Despite these advancements, the adoption of innovative home-building technologies continues to face substantial challenges:

High overhead costs, risks of investment, and workforce constraints. Modern construction methods are heavily constrained by the high initial investment and overhead costs associated with high-tech tools and equipment, such as prefabrication machinery, 3D printers, and robotics. In addition to utilizing low-skilled labour for certain tasks, some high-skilled workers trained in operating sophisticated equipment are also required, necessitating formal education and specialized skills development programs. Such training is resource-intensive, limiting its feasibility to larger firms with the financial capacity to invest in workforce development. However, in Canada, some of these larger firms have exited the modular construction space because the anticipated efficiency gains have failed to materialize. Without a consistent flow of orders, even large firms may struggle to sustain operations.
Depressed and volatile housing market. Canada’s housing market is marked by unpredictable boom-bust cycles and a lack of long-term stability, which discourages sustained investment. Volatility in financial markets and frequent shifts in monetary and immigration policy further heighten risks for both builders and homebuyers. Factory-built housing relies on scale and repetition to be cost-effective – firms need a steady throughput to reduce the burden of high overhead costs. However, current market instability makes it difficult to maintain consistent production. On the other hand, high development charges, land levies, and amenity fees drive up housing prices across the entire industry, further dampening affordability and demand, and in turn, restricting the supply of new homes. These also make it more difficult for innovative builders to scale up and compete effectively.
Financing and insurance challenges. Modular or prefabricated homes come with unique challenges compared to traditional houses. Since up to 80 percent of a modular project is completed off-site in a factory, manufacturers typically require substantial upfront payments to secure materials and begin production. However, current lending practices – both among private banks and public programs – are often structured around on-site progress payments. Hence, they rarely accommodate this model, significantly restricting access to financing for modular projects (Dragicevic and Riaz 2024). Additionally, in terms of mortgage and home insurance, modular and prefabricated homes often face inconsistent treatment across provinces, lenders, and insurers. Mortgage providers may require additional documentation, impose stricter conditions, or offer less favourable terms compared to traditional homes. For example, while CMHC does insure mortgages for modular homes, it requires that the home be permanently affixed to a foundation and comply with all local building codes – criteria that may be interpreted or enforced differently across municipalities. Some private mortgage insurers and lenders may impose further conditions or decline to finance certain factory-built or movable units, especially if they are not CSA-certified or permanently sited. On the home insurance side, modular homes may be subject to higher premiums or limited coverage due to perceived risks, misclassification, or unfamiliarity with the building method, sometimes even resulting in denied claims or coverage gaps.9
Financial support alone is not sufficient while structural barriers remain in place. Under the Apartment Construction Loan Program (previously known as Rental Construction Financing Initiative), all financing is subject to approval by CMHC. While there have been some improvements, the process can still take considerable time and needs to be streamlined. There are examples of firms exiting the Canadian market and shifting operations to the US, citing delays in CMHC fund disbursement as one of the contributing factors behind their decision.10 The same is true for the Housing Accelerator Fund, which flowed to municipalities from the federal government. While some major cities have significantly exceeded their annualized housing supply targets in terms of permits issued, others have permitted fewer units than projected under their baseline expectations.11 These challenges undermine the primary advantage of prefabrication: the ability to build faster.
Municipal permit approval is slow for all types of housing. According to the Canadian Construction Association (CCA), it also takes nearly 250 days to obtain a building permit from the municipalities or the regional authorities in Canada – three times longer than in the US – placing Canada 34th out of 35 Organisation for Economic Cooperation and Development (OECD) countries in building permit timelines. In some cities, the delays are even worse. Toronto and Hamilton take approximately 25 and 31 months, respectively, to issue permits (CHBA 2025). Municipal process delays during construction can also eliminate all time advantages of off-site construction and drive up costs.
Inconsistency among municipalities in interpreting building codes. A major challenge for scaling up is that different municipalities, sometimes in the same province, interpret the building codes in different ways, requiring time-consuming and costly customized designs. The same can be true within one municipality, with variable interpretations between building officials. This dramatically impacts repeatability and replication that could make the process faster and more cost-effective for builders, and cheaper for homebuyers.
Transportation-related hurdles. Transportation is another challenge in off-site construction, particularly for modular systems, which face strict road permitting requirements that vary by jurisdiction. While flat packing is efficient for panels and CLT, modular transport is more complex, especially across provinces. For example, module widths allowed in the Prairies can reach 7.3 metres, while in BC, they are limited to 4.88 metres, creating constraints for project delivery (Forestry Innovation Investment 2021). Similar constraints apply to transportation entering Ontario. These differences further hinder the feasibility of large-scale, duplicated production.
Duplicative inspections create inefficiencies and difficulties, as two authorities are involved – CSA-certified bodies inspect factory-built components, while local Authorities Having Jurisdiction (AHJs) handle on-site work (Forestry Innovation Investment 2021). However, many AHJs lack familiarity with off-site construction and are often unclear about their jurisdiction and the acceptability of the off-site components that should not be subjected to duplicative inspections. This confusion can delay approvals, drive up costs, and create barriers for modular and panelized projects.
Regulatory inefficiencies push firms out of Canada. For example, in 2024, a large modular construction company closed its Kitchener, Ontario factory, cutting 150 jobs. Citing overregulation, financing delays, and rising costs, the company moved operations to the US, where it found a more business-friendly environment.

Policy Pathways and Conclusions

Cost competitiveness and investment risk remain the two most pressing barriers to scaling innovative home-building technologies. According to Keynes’ law, the market will naturally shift toward innovative home-building technologies when sufficient demand exists, and the supply side is prepared to meet it within a business-friendly environment. However, this is not currently the case in Canada, as both demand and supply are constrained by structural inefficiencies, financing gaps, and regulatory hurdles. The goal should not be to restrict these technologies to publicly subsidized, affordable rental projects, but to encourage their widespread use in the regular market. This would enable large-scale production to reduce per-unit costs through economies of scale, achieve more competitive pricing and improve affordability.

To mitigate the challenges and to encourage more innovative home-building projects, the following policy actions and further research should be considered:

The federal government – and other levels of government providing financial support – should work to minimize structural barriers, such as bureaucratic complexities and delays in fund disbursement, across all housing projects. This will accelerate delivery and reduce costs, complementing broader housing goals. While all housing supply efforts deserve timely support, streamlining financing processes for innovative home-building approaches – such as modular and prefabricated construction – will help unlock productivity gains and build capacity in this developing segment of the industry.
To encourage builders to invest in innovative construction, the federal government should provide low-cost financing and investment tax credits. This would help them address high upfront costs and de-risk substantial investments in tools, machinery, and workforce training. Additionally, adopting output-based repayment models – rather than time-based – can help firms remain viable during housing market downturns.
Federal funding can help accelerate the transition to factory-built homes through targeted programming. For instance, the CHBA is advocating for Contribution Agreement Funding to establish a Factory-Built Systems Hub.12 The Hub would offer education and training for builders and officials, help address regulatory barriers, foster innovation in factory-built construction, and provide a concierge service to assist with access to government transition funding.
To boost traditional financial institutions’ confidence in financing off-site construction, CMHC should introduce construction financing insurance tailored to modular and prefabricated housing. While this insurance may add some initial cost, it would help address lender uncertainty and reduce risk premiums –improving affordability for buyers and predictability for builders. A key barrier is that financial institutions currently lack sufficient data to confidently compare off-site construction with traditional methods. This would provide the assurance needed to support lending for a relatively unfamiliar building process. This extra layer of security can be gradually reduced as lenders become more comfortable with these projects.
The federal and provincial governments should standardize the rules and eligibility requirements for mortgages and home insurance for these types of homes to eliminate regulatory uncertainty for buyers. Income tax credits for the maintenance and repair of these homes could build trust among potential buyers, lenders, and insurance companies.
Standardizing – and where possible, harmonizing – transportation requirements across provinces is crucial for the factory-built industry. Consistent regulations would enable cost and time savings by allowing the replication of identical units without the need for costly customization or delays due to jurisdictional differences.
Overall, development charges and related fees should be reduced to improve housing affordability and stimulate construction activity. A more dynamic housing market will enable the industry to benefit from economies of scale.
Municipalities should adopt a standardized interpretation of building codes to maintain consistency. Without this, efforts to develop a housing design catalogue for the industry will have limited value. Indeed, with standardization, existing housing catalogues that builders already have could be deployed easily.
Eliminating duplicative inspections would greatly streamline the construction process and avoid unnecessary costs and delays. Additionally, municipal officials need more training and education to increase their familiarity with off-site building methods and where inspection responsibilities lie.
All municipalities and local authorities should publicly announce clear target timeframes for residential permit approvals, inspection processes, and all municipal approval processes. The goal: to accelerate housing construction and provide much more certainty for development timelines for industry. They should introduce a fast-track permit approval system for residential construction projects utilizing innovative technologies. Time savings and productivity improvements offered by innovative construction methods will not be realized if delays and lengthy administrative procedures persist.
Further research is needed to benchmark Canada’s regulatory environment against peer countries and assess whether overregulation may be discouraging investment or prompting firms to relocate to more business-friendly jurisdictions. This includes studying how countries like Sweden have successfully scaled housing innovations – such as modular construction, off-site manufacturing, and mass timber – and evaluating which aspects of their experience could inform Canadian policy. While a full exploration of these international comparisons is beyond the scope of this paper, it remains a critical area for future investigation.

While some policy recommendations apply broadly to improving overall housing supply, they are essential for creating the enabling conditions that allow modular and prefabricated projects to thrive. At the same time, targeted and preferential measures specifically supporting innovative home-building technologies are also necessary to overcome their unique challenges and accelerate their adoption. Although not a panacea to the ongoing housing crisis, wider adoption of these technologies has the potential to ease pressure in the short term by accelerating construction and to improve affordability in the long term through greater efficiency and scalability. For the Silo, Tasnim Fariha Senior Policy Analyst at the C.D. Howe Institute.

The author extends gratitude to Colin Busby, Nicholas Dahir, Parisa Mahboubi, Carolyn Whitzman and several anonymous referees for valuable comments and suggestions. The author retains responsibility for any errors and the views expressed.

References

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The views expressed here are those of the author. The Silo/ C.D. Howe Institute does not take corporate positions on policy matters.

Introduction

OSFI Expanded Responsibilities and Activities

The Pros and Cons

The tension between models is genuine.

The Evolving Risk Environment: A Case for Enhanced Governance

Geopolitical Risk and Cross-Border Vulnerabilities

Cyber Risk and Technological Threats

Climate Risks

Domestic Regulatory Complexity: Basel III and Capital Requirements

The General Case for Multi-Member Governance at OSFI

International Comparison of the Governance Structures of Financial Institutions’ Regulatory Supervisors

The Evolution of Provincial Financial Regulators

The Canada Deposit Insurance Corporation as Institutional Comparator

OSFI’s Next Review

A Roadmap to Improve OSFI’s Governance

Structure of the Board

Structure of the Advisory Committees

Conclusion

REFERENCES

Building Smarter, Faster: Technology and Policy Solutions for Canada’s Housing Crisis

Introduction

Current Challenges in the Housing Market

Supply Shortage

Productivity Challenges

Affordability Crisis

Labour-Augmenting Home Building Technologies: A Promising Tool for Easing the Housing Crisis

Where Does Canada Stand on Housing Innovation?

Key Barriers to Housing Innovation

Policy Pathways and Conclusions

References

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